Wednesday, July 15, 2015

Hocus Focus

The Market Trend Model (data sheet) moved to a positive bias on Monday as both the Greek debt crisis and the upcoming earnings season come more into focus.  As has been the case for months now, the market indexes continue to slog around in one of the longest and tightest trading ranges in U.S. stock market history.

The Russell 2000 (chart), the Nasdaq (chart), the Nasdaq-100 (chart), and the S&P 500 (chartall looked to be in similar consolidations during the previous three weeks and now these major indexes have moved up together in almost lockstep fashion.

The market appears to be hearing the Federal Reserve message that the U.S. economy is improving. Janet Yellen continues to "threaten" the market with an interest rate hike (the first U.S. interest rate increase since June 2006) should the economy continue to improve.  However, Yellen's doublespeak message allows for no interest rate hike at all and she also allows the Federal Reserve to "cry wolf" as often as it likes (article).

Doubleline Capital founder Jeff Gundlach reminds us that the Federal Reserve continues to lower its 2015 GDP estimates and the U.S. economy is not improving enough to warrant an interest rate increase.  According to CNBC, Gundlach "cautioned investors against assuming that a tightening process will happen just because Fed Chair Janet Yellen said the Fed believes a hike will happen this year" (article).

At the moment the stock market appears to have shrugged off the Greek debt crisis and it is time for earnings season to drive stocks in one direction or another.  With or without an impending interest rate hike, remain mindful that anything can happen from one day to the next.